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Hi everyone,
Our Strata Company was previously registered for GST. We didn’t need to as we come under the threshold but the previous Manager (who is also the Developer of the building and still owns one unit) did so because we have two commercial units in the building (12 residential for a total of 14) so he thought it would benefit them (we have since deregistered).
When he was issuing levies, he was only charging GST on the levies for the commercial units, which as far as we are concerned, is incorrect. There is no reference to such a decision anywhere on the ATO website, and the tax document he relied upon to make that decision actually refers to leasing units.
When our new Manager took over, he entered all the financial information and entitlements in to the software, ticked the box for GST registered, and the result was that it recalculated everyone’s fees. The residential owners had a slight increase (mine was $12 a quarter) while the commercial owners had a decrease. Essentially, the GST being collected from the commercial units was being shared across all units, but the main thing is our annual income did not change.
A problem has arisen because the same Manager who made the original mistake took us to the State Adminstrative Tribunal (I’m in WA) to say the the new Manager breached the by-laws and Strata Titles Act by raising the fees without having a vote at a General Meeting. He has refused to pay the extra, and has also claimed that because of the incorrect levies he now receives, the entire thing is just so confusing and erroneous that he won’t pay any levies until it is sorted.
My questions to everyone are;
Does GST need to be charged on levies, regardless of it being a residential or commercial unit, if the Strata Company is GST registered?
Do you think he has a case for the levies being altered without the correct vote, despite the very minor increase being a result of his error?
Could we be in a potential breach of the GST laws for the previous way it was being done, and would the ATO likely come down hard on us if they were to find out?
We are actually about to send him a letter outlining our position, telling him he was wrong and showing proof that he was wrong, giving him 14 days to prove otherwise, or else we will continue to charge him the correct amount and commence debt collection proceedings. I just want to be absolutely sure that we are right before sending that letter!
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If your Strata is registered for GST then everyone should have GST charged on the levies. If the Strata is not registered for GST then no one should have GST charged on the levies. You can not simply pick and choose who gets charged GST and who does not. Certain items under the GST Act do not attract GST however Strata Levies are not part of this.
The GST is collected by the owners by the Strata Management on behalf of the ATO and then each month/quarter/ or annually is paid to the Tax Office. This is also reported on the Business Activity Statements the ATO sends out.
The simplest way to see if your Strata is registered for GST is to go to:
It is a government website that lists all entities with ABN (Australian Business Numbers) and the GST registration. If the Strata is or was registered for GST then the Strata should have an ABN.
As for the ATO coming down hard. I will be honest – in my dealings (as a tax accountant) with the ATO there is absolutely no consistency with the way they deal with issues and fines and penalties. The main issue would be if your Strata is over the threshold to be registered for GST and is not on charging GST. However since Strata’s only need to lodge income tax returns for non-mutual income such as interest earned on money sitting in a bank account the chance of the ATO finding out is remote. They have bigger fish to fry.
I would first look at the website and see if the Strata is registered for GST. Your Strata then will need to determine whether they need to be registered. If they are sure they are under the threshold then they do not need to be registered.
Get the GST sorted and it should sort out the one payment issues.
A levy is not a charge for “goods and services”, it is simply a transfer of funds from each owners bank account to a mutual account from which bills can be paid. it is no different to you moving money from one of your own bank accounts to another. The ATO was clearly stated in the past that this money in a Strata account is not “income”. Thus I can’t see how it should attract a GST component, whether it is commercial or not.
The Body Corporate would be the same as any other business. It could have income (say from leased property) on which GST might be chargeable, and it will pay bills to outside parties which have a GST component. Even interest received from bank accounts is taxable income.
But levies received from owners are not income.
Matthew – I think we can all rely on Missy’s post (#2), where as a Tax Accountant she clearly explains your original queries.
As for the subject of levies being income, as a non-accountant I’ll have a go at explaining that, as they (i.e. levies) are payments made for the procurement of services by the Owners Corporation, they represent income in the hands of the O/C, and if the annual total of levies and other income then exceeds the threshold for the Goods and Services Tax (GST), then the O/C needs to Register for the GST.
The O/C’s liability for Business Income Tax by the ATO is however determined differently, under the “principle of mutuality”, which to quote the ATO (with my emphases in brackets)…. “is based on the proposition that an organisation cannot derive income from itself, so where a number of persons (i.e. Owners) contribute to a common fund (i.e. Admin & Sinking) created and controlled by them for a common purpose (i.e. the management of the Strata Plan), any surplus arising from the use of that fund for the common purpose is not income.”
But… income by an O/C from sources other than levies, such as interest and the leasing of common property is, as Boronia mentioned, assessable as business income (30%) and a Taxation Return needs to be lodged; interestingly using THIS 2 page Form just for Strata Plans – so simple really and hardly worth the $450 that our past Strata Managers used to charge us (back in 2006) to complete and lodge a normal Business Taxation Return!
I am another non-accountant, but my understanding is that I am part of the OC (it is not a third party entity) and jointly liable (to the extent of my UEs) for its debts. I simply contribute to a pool of money to pay for my share of the expenses (which will most probably have a GST component – I don’t see why I would have to pay GST twice on the same bill).
I have a credit card which pays my bills, and I reimburse the CC company at regular intervals and I do not get charged GST for that.
Could Missy please explain where my logic is failing?
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